Equity and Adverse Selection

34 Pages Posted: 11 May 2007

See all articles by Ramarao Desiraju

Ramarao Desiraju

University of Central Florida - College of Business Administration

David E. M. Sappington

University of Florida - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

We introduce concerns with inequity into the canonical adverse selection model. We find that aversion to ex post inequity is not constraining for the principal if the two agents are identical ex ante, but generally is constraining when the agents differ ex ante. Constraining equity concerns can lead to output levels that are either above or below standard levels, and can result in only one agent experiencing systematic inequity in equilibrium.

Suggested Citation

Desiraju, Ramarao and Sappington, David E. M., Equity and Adverse Selection. Journal of Economics & Management Strategy, Vol. 16, No. 2, pp. 285-318, Summer 2007, Available at SSRN: https://ssrn.com/abstract=986018 or http://dx.doi.org/10.1111/j.1530-9134.2007.00140.x

Ramarao Desiraju (Contact Author)

University of Central Florida - College of Business Administration ( email )

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David E. M. Sappington

University of Florida - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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